During a period of inﬂation, which cost formula will result in the highest net income?

Question

Quizplus · Accepted Answer

During a period of inflation, the FIFO (First-In, First-Out) method will result in the highest net income. This is because FIFO assumes that the oldest inventory items are sold first, so the cost of goods sold is based on the cost of the older, cheaper inventory. As a result, the remaining inventory is valued at the higher, more recent costs, leading to a lower cost of goods sold and, consequently, a higher net income compared to other costing methods.

During a Period of Inﬂation, Which Cost Formula Will Result